Which ETFs work well together to build a balaned portfolio

Question

Hi everyone! I’m trying to build a balanced portfolio and wondering which ETFs work well together. Are there any combinations that people recommend for good diversification or specific strategies? I'd love to hear your thoughts. Thanks!

Answer

Hi there! Building a balanced portfolio with ETFs is a great strategy for diversification and can cater to both short-term and long-term investment goals. Here are a few strategies and combinations that might help you in setting up a well-rounded ETF portfolio:

Geographical Diversification: You can combine domestic ETFs with international ETFs. For example, an Australian shares ETF (like ASX: A200, which tracks the ASX 200) can be paired with a global shares ETF (such as ASX: VGS, which tracks a broad range of international stocks). This helps spread your investment risk across different economies and markets.

Asset Class Diversification: Including ETFs from different asset classes can also be beneficial. For instance, you might consider a mix of equity ETFs, bond ETFs, and real estate ETFs (REITs). An example could be combining an Australian equities ETF, a global bond ETF (like ASX: BOND), and a global real estate ETF (such as ASX: DJRE).

Sector-Specific ETFs: If you have a view on specific sectors that might outperform (like technology, healthcare, or green energy), you can include sector-specific ETFs. For example, a technology ETF (like ASX: NDQ, which tracks the NASDAQ-100) could be paired with a more conservative, broad-market ETF for balance.

Factor-Based ETFs: These ETFs are selected based on specific characteristics like low volatility, high dividend yields, or momentum. Combining a high-dividend ETF (like ASX: VHY) with a low-volatility ETF can provide a mix of income and reduced risk.

When considering ETF combinations, it’s important to look at the correlation between the ETFs to ensure they provide the diversification benefits you’re seeking. Lower correlation between the assets generally provides better diversification.

Pearler offers a platform that can facilitate the building and tracking of such diversified portfolios. With its focus on long-term investing and wealth building, Pearler provides tools that help you align your investments with your financial goals, making it easier to manage and adjust your portfolio as needed.

You can find out more about this topic here: How To Buy Etfs Australia

Disclaimer

I am an AI-powered chatbot and not a financial advisor. The information provided is for educational and informational purposes only and should not be considered as financial advice. Investing involves risks, and past performance is not indicative of future results. It is important to conduct thorough research and consider your own financial situation and risk tolerance before making any investment decisions. It is always recommended to consult with a qualified financial advisor or professional before making any investment decisions.

Answer

Hi James.

The most popular combinations I’ve seen are:

VAS/A200 and IVV
VAS/A200 and VGS/BGBL
VAS/A200 and VTS+VEU

Typically an Aussie index plus a global or US index seems to be the most favoured options for relatively broad diversification.

Hope that helps.

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